OpinionsThe Chapter 7 trustee identified an asset that was potentially available for creditors, the interest of one of the debtors in a self-settled spendthrift trust. The debtors filed a motion to convert the case to Chapter 13 and the court granted the motion over the Chapter 7 trustee’s objection. After the conversion of the case, the court awarded the former Chapter 7 trustee reasonable compensation for “actual, necessary services” under 11 U.S.C. § 330(a)(1) for the services he performed in the Chapter 7 case but disallowed compensation for services that were not reasonably likely to benefit the debtors’ estate or necessary to the administration of the case as provided in § 330(a)(4)(A). In re Goff, No. 23-21549 (Bankr. E.D. Wis. Sept. 10, 2024) (September 2024) -- Judge K.M. Perhach The court determined that a debtor’s interest in a self-settled spendthrift trust was property of the debtor’s bankruptcy estate. Well before filing his bankruptcy case, the debtor created a trust that would pay him a percentage of the net fair market value of the trust assets each year for his lifetime. He appointed a relative as the trustee. The trust provided that on the debtor’s death, the trustee would distribute the trust principal to a charity. It contained a “spendthrift provision” restraining the transfer of the debtor’s interest. The court concluded that the spendthrift provision in this self-settled trust was not enforceable under Michigan law. Section 541(c)(2) of the Bankruptcy Code did not exclude the debtor’s interest in the trust from the bankruptcy estate. Accordingly, the best-interests-of-creditors test of § 1325(a)(4) required the Chapter 13 debtors to pay holders of allowed unsecured claims as much as they would receive if the asset were liquidated under Chapter 7. The court did not have sufficient evidence to determine the value of the debtor’s interest that was included as property of the estate, so the court scheduled a status conference to determine whether to set an evidentiary hearing to determine the value of the 76-year-old debtor’s interest in the trust or how to otherwise establish an actuarially derived valuation of the interest in future trust disbursements. In re Kumm, Case No. 23-22866 (August 2024) -- Chief Judge G.M. Halfenger The chapter 7 debtor moved to reopen his bankruptcy case to pursue an adversary proceeding seeking a determination that the debt he owed to the Department of Education was not excluded from discharge by section 523(a)(8). The court initially denied the motion, determining that the debtor had not made a showing of why reopening the case was necessary to file the adversary proceeding to request a determination of dischargeability. The debtor filed a “renewed” motion to reopen, asserting that the Department of Education was requiring the debtor to reopen his case before the Department would conduct a review of his federal student loans under the Department’s internal procedures. The court construed the “renewed” motion as a motion for reconsideration and denied that motion, determining that there were no grounds to grant relief under Federal Rule of Civil Procedure 60(b) from the final order denying the motion to reopen, and concluding, among other things, that the court has jurisdiction over a section 523(a)(8) adversary proceeding regardless of whether the underlying bankruptcy case is open or closed. Although denying the motion for reconsideration, the court reopened the case sua sponte, ruling that Federal Rule of Bankruptcy Procedure 4007(b) authorizes (though does not require) reopening to file a complaint requesting a declaration of dischargeability and the Department’s refusal to evaluate the debtor’s student loan debt under its internal procedures unless the bankruptcy case is open adequately amounted to cause under section 350(b) to reopen. In addition to reopening the case, the court ordered as follows: "For all cases and adversary proceedings assigned to the author of this decision and order, the Clerk is directed to reopen any closed bankruptcy case of a debtor who files a complaint requesting a judgment declaring a student loan debt to be dischargeable and reclose the case after entry of judgment or a final order in the resulting adversary proceeding. The Clerk is directed not to await a motion to reopen. In such instances, the court will reopen all the cases sua sponte based on the reasoning of this decision and order." Uecker v. Benishek (In re Benishek), Case No. 23-24120, Adv. No. 23-2142 (Bankr. E.D. Wis. Aug. 2, 2024) (August 2024) -- Judge K.M. Perhach A creditor filed an adversary complaint seeking a determination that a state court judgment was non-dischargeable. The complaint was filed one day after the deadline established in Fed. R. Bankr. P. 4007(c). The court granted the defendant’s motion to dismiss the adversary proceeding. The complaint was untimely, the plaintiff did not move to extend the time to file the complaint before the deadline expired as required by Fed. R. Bankr. P. 4007(c), and Fed. R. Bankr. P. 9006 precluded the court from extending the deadline stated in Fed. R. Bankr. P. 4007(c) based upon “excusable neglect.” Souran v. Motel 6 et al., Case No. 21-25247, Adv. No. 23-2082 (Bankr. E.D. Wis. July 26, 2024) (July 2024) -- Judge K.M. Perhach A pro se debtor asserted claims against Kia America, Inc. based on the theft of a Kia vehicle from a motel parking lot. The court dismissed the debtor’s negligence claim based on lack of subject matter jurisdiction. The court did not have “related to” jurisdiction over the negligence claim. The claim was not property of the estate under 11 U.S.C. § 348(f) because it arose between the date the debtor filed his Chapter 13 bankruptcy case and the date he converted the case to Chapter 7. It could not have had any effect on the estate because any recovery on the claim would not be available to satisfy the claims of creditors in the bankruptcy case. The court also dismissed the debtor’s claim for violation of the automatic stay for failure to state a claim upon which relief could be granted. The only facts pled in support of that claim were that an unknown third party stole a vehicle from a parking lot. The debtor failed to plead sufficient facts that permitted the court to draw the reasonable inference that the manufacturer of the vehicle violated the automatic stay when an unknown third party stole the vehicle. Layng v. Jackson (In re Bolden) Adv No. 23-2067 (July 2024) -- Judge R.M. Blise The U.S. Trustee filed an adversary complaint against Jeanine Jackson seeking to enjoin her from acting as a bankruptcy petition preparer (BPP) in the Eastern District of Wisconsin pursuant to 11 U.S.C. § 110. The Court found that Jackson repeatedly violated § 110(b) and (c) by failing to sign all documents she prepared for filing and failing to place her name, address, and identification number on all documents she prepared for filing. The Court also found that Jackson repeatedly violated § 110(e)(2), which prohibits BPPs from providing legal advice, when she characterized the nature of debts, chose the amount and applicable law for exemptions, completed means test forms, drafted chapter 13 plans, advocated on her clients' behalf with trustees and creditors, and prepared motions, letters, and an adversary complaint for her clients, all in violation of § 110(e)(2). Jackson was admonished by Judge Kelley in 2018 regarding the scope of permissible services that a BPP may provide. Based on Jackson's disregard of Judge Kelley's instruction and her apparent inability to distinguish between the unauthorized provision of legal advice and the scrivener's services permitted by the statute, the Court determined that a permanent injunction was appropriate. In re Greenpoint Asset Management II LLC, Case No. 21-25900 (June 2024) -- Chief Judge G.M. Halfenger The court entered an opinion and order denying debtor Greenpoint Asset Management II, LLC’s motion to reconsider the court’s March 18, 2024 order determining that there was cause to convert or dismiss the debtor’s chapter 11 case, and determined that dismissal was in the best interests of creditors and the estate. In re Mayville Holdings, LLC, Case No. 23-24460-BEH, 662 B.R. 354 (June 2024) -- Judge B.E. Hanan The Chapter 11 debtor, which operates an assisted living facility, objected to the claim of its primary secured creditor, arguing that only a portion of the claim—secured by a mortgage and security interest in the debtor’s real and personal property—should be treated as secured, and asked the Court to determine the value of the secured portion under 11 U.S.C. § 506(a). The debtor and the creditor both presented appraisals and testimony from expert witnesses, who reached vastly different valuation conclusions. The Court found both experts to be similarly qualified and experienced, and both used the same accepted and competent methodologies. Given the experts’ credentials and the degree of data support each offered for their conclusions, the Court declined to credit the valuation of one appraisal and wholly discount the other. Instead, considering the thoroughness of the two appraisals, yet mindful of some weaknesses in each, the Court found it appropriate to average the two different valuation conclusions, rather than assign a dollar value to each critique. This approach best accounted for undue optimism in one expert’s appraisal and undue pessimism in the other, without credentialing the Court as a third appraiser. In re Ackerman, Case No. 23-22510-beh, 2024 WL 1925980 (May 2024) -- Judge B.E. Hanan The Chapter 13 debtor filed a plan proposing to “cure and maintain” a claim secured by a reverse mortgage on her homestead under 11 U.S.C. § 1322(b)(5). Several years prior to the petition date, the debtor and her now-deceased husband had signed the reverse mortgage on the property, while only her husband had signed the promissory note. The debtor’s husband passed away a little more than a month before she filed her case. The mortgage creditor objected to confirmation of the debtor’s plan, arguing that the entirety of the note had been called due prepetition, based on the death of her husband, combined with her failure to cure a prepetition tax arrearage on the property, and had to be paid in full through her plan. The Court examined the language of the mortgage and note at issue, as well as the applicable federal laws and regulations in existence when the note and mortgage were signed, and concluded that the parties intended that the maturity date of the note would be fixed upon the occurrence of one of two events: (1) the later of either (a) the death of the borrower or (b) the death (or ineligibility) of the nonborrowing spouse (the debtor); or (2) the sale of the property. Because the loan had not matured on its own terms due to the debtor’s failure to cure the property tax arrearages, the Court concluded that the debtor could cure the contractual default through her plan, and overruled the creditor’s objection. In re Weylock, Case No. 18-30208 (April 2024) -- Chief Judge G.M. Halfenger The chapter 13 debtors filed an objection to a mortgage creditor's response to the trustee's notice of final cure payment. The court construed the creditor's response to state that the debtors are current on postpetition payments for purposes of 11 U.S.C. §1322(b)(5), despite the outstanding postpetition fees, charges, and expenses listed in the response, and declined to act on the debtors' objection, which should have been filed (if at all) as a motion for a determination of final cure and payment under Federal Rule of Bankruptcy Procedure 3002.1(h). |